MGT • Using resources wisely and in a cost-effective way

− Producing high-quality products at low costs

• Management involves four basic activities:
Planning and decision making, organizing, leading,
and controlling
Coverage: Studied Review Effective:
Chapter 1 • Making the right decisions and successfully • Most managers engage in more than one activity at
Chapter 2 implementing a time and often move between activities in
Chapter 3 them unpredictable ways.
Chapter 4 − Producing enough, but not too much so as to carry
Chapter 5 Inventory Managing at Different Levels of the Organization
Chapter 6
Chapter 7 The Management Process
Chapter 8
Chapter 9 • Manager:
− Someone whose primary responsibility is to carry out
the management process
Chapter One: Managing and the
Manager’s Job • Planning:
− Setting an organization’s goals and deciding how best
to achieve them
An Introduction To Management
• Decision making:
Organization Levels of management: The differentiation of
− Part of the planning process that involves setting a
• A group of people working together in structured and managers into three basic categories—top, middle,
course of action from a set of alternatives
coordinated fashion to achieve a set of goals and firstline
• Organizing:
Management Top managers:
− Determining how activities and resources are to be
• A set of activities directed at an organization’s • The relatively small group of executives who
Grouped
resources to achieve organizational goals in an manage the overall organization. They create the
efficient and effective manner organization's goals, overall strategy, and operating
• Leading:
• More elusive to define policies.
− The set of processes used to get members of the
• All organizations use four basic resources from the • Vice presidents, CEO, CFO
organization to work together to further the interests of
environment
the organization
Middle managers:
Four basic resources from the environment: • Primarily responsible for implementing the policies
• Controlling:
1. Human resources: Managerial talent and labor and plans developed by top managers. They also
− Monitoring organizational progress toward goal
2. Financial resources: Capital used to finance supervise and coordinate the activities of lower-level
attainment
ongoing and long-term operations managers.
3. Physical: Raw materials, facilities, and equipment • Plant manager, division head, operations
4. Information: Usable data need to make effective
decisions First-line managers:
• Supervise and coordinate the activities of operating
Management should be: employees.
Efficient: • Supervisor, coordinator, office managers
Managing in Different Areas of the Organization Technical skills: • The science of management:
• Those necessary to accomplish or understand the − Assumes that problems can be approached using
Marketing managers: specific kind of work being done in an organization rational, logical, objective, and systematic ways
• Sell the product and work in new-product • Keeping up to date with changes in tax codes − Requires the use of technical, diagnostic, and
development, promotion, and distribution decision-making skills and techniques to solve
Interpersonal skills: problems
Financial managers: • The ability to communicate with, understand, and
• Undertake accounting, cash management and motivate both individuals and groups • The art of management:
Investments • Giving a performance appraisal to a poor performer − Making decisions and solving problems using a
blend of intuition, experience, instinct, and personal
Operations managers: Conceptual skills: insights
• Control production, inventory, quality, and plant • The manager’s ability to think in the abstract − Using conceptual, communication, interpersonal,
layout • Determining the use of next-generation technology and timemanagement skills to accomplish the tasks
associated with managerial activities
Human resource managers: Diagnostic skills:
• Hire and develop employees; planning, recruiting • The manager’s ability to visualize the most appropriate Becoming a Manager
and selecting, training and development, retention response to a situation
• Understanding the relationship between declining
Administrative managers: sales and new product development
• Not associated with any particular management
specialty; Communication skills:
specialist with basic familiarity of all functional areas • The manager’s abilities to both effectively convey
ideas and information to others and to effectively
Other types of managers: receive ideas and information from others
• Public relations, research and development, social • Verbal and nonverbal, writing emails, reports and
media specialist proposals

Managerial Roles Decision-making skills:

• The manager’s ability to correctly recognize and define Although there are many paths to becoming a
problems and opportunities and to then select an manager, the most common path involves a
appropriate course of action to solve problems and combination of education and experience.
capitalize on opportunities
• Stopping production because of a quality issue The Scope of Management

Time-management skills: Profit Seeking

• The manager’s ability to prioritize work, to work • Large businesses: industrial firms, commercial
efficiently, and to delegate appropriately banks, insurance firms, retailers, transportation firms,
• utilities, communication firms, service organizations
• Small businesses and start-up businesses
• International management
Managerial Skills
The Art and Science of Management Not-for-Profit
• Governmental organizations: local, state, and • Results in increased pace of work and amount of
federal information that must be processed
• Educational organizations: public and private • Blurs lines of work and personal life
schools, colleges, and universities • Creates vulnerabilities in terms of data breaches
• Healthcare facilities: public hospitals and HMOs
• Nontraditional settings: community, social, spiritual Outcomes of technology of work processes:
groups • Can create flatter organizations
• Use of work teams, including global and virtual teams
The New Workplace
The New Workplace This simple timeline shows a few of the most
Diversity is increasing in the workforce. important management breakthroughs and practices
• Diversity has numerous dimensions, but the most • Managers must create an attractive environment for over the last 4,000 years.
common are age, gender, ethnicity, and physical today’s worker.
abilities and disabilities. Diversity refers to differences • They must provide incentives to motivate a diverse Early Management Pioneers
among people. workforce.
• Be prepared to cope with continual change. Robert Owen
Demographic composition is changing. • New technology remains a challenge. • One of the first managers to recognize the
• The “yuppies” of the 1980s were highly motivated. • Managers now have a complex array of organizing importance of human resources
• Generation X, Y, and Millennials desire flexibility and possibilities. • Raised working age for children, reduced hours, and
individuality and are less devoted to long-term career supplied meals
prospects. Chapter Two: Traditional and Contemporary
• Declining birthrates affect the labor pool; the Management Charles Babbage
average age of U.S. workers is gradually increasing.
Perspectives • Mathematically focused on efficiency of production
• Believed in division of labor
Changing demographics in the workplace: • Forerunner of both classical and quantitative
• People living and working longer The Importance of Theory and History
management perspectives
• Retirees now an excellent source of part-time and
temporary employees Theory: A conceptual framework for organizing
knowledge and providing a blueprint for action Classical Management Perspective
• Increasing numbers of Hispanics and African
Americans • Classical management perspective: Consists of
in the workplace, including immigrants and refugees • Management theories are grounded in reality.
− Theories are used to build organizations and guide two distinct branches—scientific management and
• Increased opportunities for those with disabilities administrative management
them toward their goals.
Women in the workplace: • Scientific management: Concerned with improving
• Increasing numbers in both white- and blue-collar • Understanding the historical context provides a sense
of heritage and helps managers avoid mistakes of others. the performance
jobs of individual workers
• Moving into occupations previously dominated by • Soldiering: Employees deliberately
males Management in Antiquity
working at a slow pace so as not to
overproduce
Technology is an increasingly important • Practice was identified by Frederick Taylor,
challenge: one of the best-known contributors to the
• Communication advances such as smartphones and field
wireless networks making it easier to communicate
• Administrative management: Focuses on • Later attributed to heightened employee morale due
managing the total organization Max Weber to extra attention
• Studied efficient organizational structure • Later studies identified “rate busters” (overproducers)
Scientific Management and “chiselers”
Chester Barnard (underproducers)
Frank and Lillian Gilbreth • Wrote about acceptance of authority • Conclusion: Human behavior was more important in
• Developed numerous techniques and strategies for the workplace than
eliminating inefficiency The Classical Management Perspective Today previously believed.
• Lillian shaped the field of industrial psychology;
made contributions to the field of personnel Contributions The Human Relations Movement
management • Laid the foundation for management theory
• Identified key processes, functions, and skills Human relations movement:
Henry Gantt • Made management a valid subject of study • Argued that workers respond primarily to the social
• Introduced the Gantt chart for scheduling work context of the workplace
• Means for scheduling work for each worker or for an Limitations • Stemmed from Hawthorne studies
entire complex project • Best used in simple, stable organizations
• Refined Taylor’s ideas about piecework pay systems • Universal procedures not always appropriate in some Theory X
settings • A pessimistic and negative view of workers
Harrington Emerson • Employees not viewed as resources consistent with the views of
• An advocate for specialized management roles scientific management
Classical Management Perspective • People do not like work and try to avoid it.
Steps in Scientific Management
Theory Y
• A positive view of workers; represents the
assumptions that human relations
advocates make.
• People are internally motivated to reach objectives
to which they are committed.
• Frederick Taylor saw workers soldiering, or
deliberately working below their potential. He devised
Theory X Assumptions
this four-step method to overcome the problem.
1. People do not like work and try to avoid it.
2. People do not like work, so managers have to
Administrative Management
control, direct, coerce, and threaten employees to get
them to work toward organizational goals.
Henri Fayol Behavioral Management Perspective 3. People prefer to be directed, to avoid responsibility,
• Tried to systematize the practice of management to
and to want security; they have little ambition.
provide guidance and direction to other managers Behavioral management: Emphasizes individual
• First to identify managerial functions of planning, attitudes and behaviors and group processes Theory Y Assumptions
organizing, leading, and controlling, a framework that
• People do not naturally dislike work; work is a
is still in use today Hawthorne studies: natural part of their lives.
• Found increased productivity in both the control and • People are internally motivated to reach objectives
Lyndall Urwick experimental group to which they are committed.
• Integrated scientific and administrative management
• People are committed to goals to the degree that • Focuses specifically on the development of • Tries to identify the “one best way” to do something
they receive personal rewards when they reach their mathematical models • Includes the classical, behavioral, and quantitative
objectives. • Mathematical model: A simplified representation of a Approaches
• People will both seek and accept responsibility system, process, or relationship
under favorable conditions. Contingency perspective:
• People have the capacity to be innovative in solving Operations management: • Suggests that appropriate managerial behavior in a
organizational problems. • Concerned with helping the organization more efficiently given situation depends on, or is contingent on, a
• People are bright, but under most organizational produce its products or services wide variety of elements
conditions their potential is underutilized. • Believes each organization and each situation is
Quantitative Management Perspective unique
The Emergence of Organizational Behavior
An Integrative Framework of Management
Organizational behavior: Perspectives
• Contemporary field focusing on behavioral
perspectives on
management
• Takes a holistic view of behavior and addresses
individual, group,
and organizational processes The Systems Perspective
• Draws from a broad interdisciplinary base, including
psychology, System:
sociology, anthropology, economics, and medicine • An interrelated set of elements functioning as a whole
• Four basic elements of a system: inputs, transformation
Behavioral Management Perspective processes, outputs, and feedback

Open system:
• A system that interacts with its environment
• Organizations are open
Managers should include a portion of each
Closed systems: perspective relevant to their situation and apply them
• A system that does not interact with its environment using systems and contingency approaches.
Subsystems: Contemporary Applied Perspectives
• A system within another system • Major publications have had a major impact on the
Quantitative Management Perspective field of organizational behavior and the practice of
Systems Perspective of Organizations management include:
Quantitative management perspective: Synergy: Two or more subsystems working together to • Theory Z
• Applies quantitative techniques to management produce more than the total of what they might produce • In Search of Excellence
• Two branches are management science and working alone • Biographies of successful business
operations • Entropy: Normal process leading to system decline leaders
management • Authors such as Peter Senge, Stephen
Contingency Perspective Covey, Tom Peters, Michael Porter, John
Management science: Universal perspective: Kotter, and Gary Hamel
 • Malcolm Gladwell’s books • The overall health and vitality of the economic
• Impact of Dilbert cartoons system in which the organization operates
• Recessions, high inflation, low interest rates
Contemporary Management Challenges
• An unpredictable economy, limiting growth Technological dimension:
• Many challenges presented by globalization • Methods available for converting resources into
• Ethics and social responsibility in relation to products or services
corporate governance • Integrated software systems, privacy, and security
• Quality as the basis for competition, increased
productivity, and lower costs Sociocultural dimension:
• The shift toward a service economy • Customs, mores, values, and demographic
• The role and impact of social media The External Environment characteristics of the society in which the organization
The external environment is made up of two forces: functions
Chapter Three: Understanding the
Organization's Environment General environment: Political-legal dimension:
• Broad dimensions and forces in the surroundings that • Government regulations of business and the
The Organization's Environments create its overall context relationship between business and government
• A key element in effective management is • Not necessarily associated with other organizations • Taxes, economic growth and recession, pro- or
determining the ideal alignment between the • Includes economic, technological, sociocultural, political- antibusiness sentiment in government
environment and the organization. legal, and international dimensions
International dimension:
The external environment: Task environment: • Extent to which an organization is involved in or is
− Everything outside an organization’s boundaries • Specific external organizations or groups that influence affected by business in other countries
that might affect it an organization • International competition, global suppliers,
− Suppliers, weather, transportation, government • Suppliers, consumers international sales and marketing efforts
regulation
McDonald’s General Environment The Task Environment
The internal environment: • Includes competitors, customers, suppliers, strategic
− The conditions and forces within an organization partners, and regulators
− Employees, cultures, physical environment
Competitors:
The Organization and Its Environments • Organizations that compete with other organizations
for resources
External environment: Made up of the task • Resources include parts, supplies, labor, customers
environment and
the general Customers:
environment • Whoever pays money to acquire an organization’s
products or services
• Critical differences in international customer base

The General Environment Regulators:

Economic dimension:
• A unit that has the potential to control, legislate, or • Governing body elected by a corporation’s stockholders new slogans, and tell new stories to support the new
otherwise influence the organization's policies and and charged with overseeing the general management of culture.
practices the firm to ensure that it is being run in a way that best
serves the stockholders’ interests The Multicultural Environment
Regulatory agency: • Now has more oversight as the result of recent scandals Multiculturalism:
• An agency created by the government to regulate • At issue is corporate governance—who is responsible − The broad issues associated with differences in
business activities and accountable for the actions of the business values, beliefs, behaviors, customs, and attitudes held
• OSHA, Food and Drug Administration, by people in different cultures
EPA Employees:
• Interest groups: Groups organized by • The workforce is becoming increasingly diverse: Diversity:
members to attempt to influence business • Age, gender, ethnicity, and other dimensions − Exists in a group or organization when its members
• Safety committee, unions • Workers also calling for more job ownership differ from one another along one or more important
• Increased reliance on temporary workers; greater dimensions, such as age, gender, or ethnicity
Suppliers: flexibility provided for workers and organizations
• Organizations that provide resources for other • Labor unions add a complex layer Trends in Diversity and Multiculturalism
organizations
• Strategies might include buying from one supplier or Physical work environment:
many • Issues include location, design, and layout
• Many moving to more open environments, with small
Strategic partners: rooms for private business
• Organizations that work together with one or more
other organizations in a joint venture or similar The Importance of Organization Culture
arrangement
• Opening stores internationally, working with local Organization culture: Set of values, beliefs, behaviors, The most fundamental trend is that we are becoming
Suppliers customs, and attitudes that help members understand more diverse and multicultural.
what it stands for, how it does things, and what it
McDonald’s Task Environment considers important Dimensions of Diversity and Multiculturalism
• It determines the feel of the organization • Age:
• Not every area of the organization has the same culture. − Age of the average worker is increasing and is
• Culture is a powerful force that helps shape the firm’s expected to do so for
overall the next several years
effectiveness and long-term success. − Declining birth rates, longer life expectancy
− Improved health and medical care
Determinants of Organization Culture − Lack of funds for retirement
Typically develops over a long period of time
• Corporate success and shared experiences shape • Gender:
The Internal Environment culture. − Increasing number of women in traditionally male
• Managers must understand current culture and decide to jobs
Owners: maintain or change − Glass ceiling: a perceived barrier in some
• Whoever can claim property rights to an • If it is in the best interests of the firm, managers should organizations that hinders
organization reward behavior consistent with the culture. women from advancing to top management positions
• Investors, stockholders, banks, partners • If the current culture needs changing, managers must
Board of directors: identify the culture they prefer, bring in outsiders, adopt
• Diversity dimensions:
− Physical mobility Five competitive forces in the environment: Organization design and flexibility:
− Religious beliefs 1. Threat of new entrants: Extent to which new • How an organization adapts to environmental
− Single parents competitors can easily enter a market conditions by incorporating flexibility
− Dual-career couples 2. Competitive rivalry: The nature of competitive
− Sexual orientation relationships between dominant firms in the industry • Direct influence:
− Dietary preference 3. Threat of substitute products: Extent to which • Some firms can directly influence their environment
− Political ideologies alternative products or services affect the need for • Signing long-term contracts with suppliers
existing products or services • Vertical integration
• Multicultural differences: 4. Power of buyers: Extent to which buyers in an industry • Lowering prices
− Some organizations actively enhance their can influence the suppliers • Creating new products
multiculturalism. 5. The power of suppliers: Extent to which suppliers can • Finding new customers
− Soon, all companies may become multicultural, due influence potential buyers
to changes in the external labor market. Chapter Four: Responding to the
− Increased immigration: In 2019 1.2 million How Organizations Adapt to Their Environment
immigrants arrived in the United States. Ethical and Social Environment
Information management
How Environments Affect Organizations Individual Ethics in Organizations
Boundary spanner: An employee who spends much of
Change and complexity: his or her time in contact with others outside the Ethics:
− Focuses on two dimensions: organization to learn about what other organizations are • It is defined as one’s personal beliefs about whether
1. Rate of change: The extent to which the doing a behavior, action, or decision is right or wrong.
environment is • People have ethics; organizations do not!
relatively stable or dynamic Environmental scanning: Actively monitoring the • Ethical behavior varies from person to person.
2. Degree of homogeneity: The extent to which the environments through activities such as observation and
environment is relatively simple or relatively complex reading Ethical behavior:
• Uncertainty: • Behavior that conforms to generally accepted social
• The unpredictable driving force that influences Information systems: Used to gather and organize norms
organizational decisions relevant information to assist in summarizing information
• Unpredictability created by environmental change for each manager’s needs Unethical behavior:
and complexity • Behavior that does not conform to generally
Strategic response: accepted social norms
Environmental Change, Complexity, and Uncertainty • Realizing something has changed and determining what
action, if any, is needed Managerial Ethics
• Altering strategy, adopting an entirely new strategy
Managerial ethics:
Mergers, acquisitions, and alliances: Managers need to approach
• Merger: Two or more firms combine to form a new firm each set of relationships
• Acquisition: One firm buys another, sometimes against from an ethical and moral
its will (hostile takeover). Firm taken over ceases to exist perspective.
• Alliance: Firm forms a new venture with another
company
Competitive Forces How Organizations Adapt to Their Environment How an organization treats
its employees • Maintaining organizational justice Ethical Leadership
• Includes policies such as hiring and firing, wages Ethical leadership
and working conditions, and employee privacy and Applying Moral Judgment • The Sarbanes–Oxley Act of 2002 requires CEOs
respect − Gather the relevant factual and CFOs to personally vouch for the truthfulness and
information. fairness of their firm’s financial disclosures.
How employees treat the organization − Determine the most appropriate moral values.
• Conflicts of interest, secrecy and confidentiality, and − Make an ethical judgment Corporate governance
honesty based on the rightness or wrongness of the proposed • Boards of directors must be independent
• Conflict of interest occurs when a decision activity or policy. • Ensures the business is being properly managed
potentially benefits the individual to the possible and that decisions are in the best interest of
detriment of the organization Other Principles shareholders
• Trade secret, use of technology, social media − Ethical norms, including: • Boards increasingly being criticized even when
activity, calling in sick when not really sick, falsification − Utility—does the act optimize outcomes? implicated in wrongdoing
of resumés and references − Rights—does the act respect the rights of all involved? • Bribery charges, paying CEOs bonuses even though
− Justice—is it consistent and fair? performance is poor
How other economic agents are treated − Caring—is the act consistent with people’s
• Includes customers, competitors, stockholders, responsibilities to each other? Information technology
suppliers, dealers, and unions • Online privacy an important ethical concern for
• Advertising and promotions, financial disclosures, Organizational justice: customers and for employees
ordering and purchasing, shipping and solicitations, • The perception of people in an organization regarding • Balance between individual rights and corporate
bargaining and negotiations fairness rights
• Potential for abuse of information technology by
Ethical responses Four basic forms of organizational justice: individuals
• Peer managers and top managers, organizational 1. Distributive • Gathering data on searches, keystrokes, and
culture all contribute to ethical context 2. Procedural amount of time on websites
• Includes personal standards of ethics 3. Interpersonal • Use of company technology for personal use
• Managerial responses to unethical behavior 4. Informational • Who owns that data?
• High levels of competition contribute to context for
ethics Organizational Justice Areas of Social Responsibility
• Distributive justice is people’s perceptions of the • Social responsibility: The set of obligations an
Managing Ethical Behavior fairness with distribution of rewards. organization has to protect and enhance the societal
• Procedural justice is individual’s perceptions of the context in which it functions
Emphasizing ethical behavior takes many forms fairness used to determine outcomes. − Stakeholder: Person or organization who is directly
but starts with top management • Interpersonal justice is the fairness people see in how affected by the practices of an organization and has a
• Committees and training are options they are treated by others. stake in its performance
• Informational justice is the perceived fairness of − The natural environment: Waste management,
Three common options: information used for decisions. climate change, disastrous environmental accidents
• Creating ethics codes − General social welfare: Promote the general
• Written statements of the values of ethical A Guide for Ethical Decision Making welfare of society
standards that guide the firms’ actions • The resulting analysis allows a
• Must be adhered to if they are to be of manager to make a clear
value assessment of whether a decision or
• Applying moral judgment policy is ethical.
Organizational Stakeholders • Donates to community groups Lobbying
• Most companies focus on three • Proactive stance: Views itself as a citizen and seeks • Uses persons or groups to formally
main groups: opportunities to contribute represent an organization before political
Customers, bodies
Employees, and A political action committee (PAC)
Investors. • Created to solicit and distribute money to
political candidates

Favors and other influence tactics

Social Responsibility
• The natural environment Formal Organizational Actions
− Laws now regulate how businesses treat the natural
environment. Legal compliance
− Disposal of hazardous waste, climate change, and • The extent to which the organization
sustainability are all concerns. How Business and the Government Influence Each Other complies with local, state, federal, and
− Much remains to be done. international laws
• Following the law not a guarantee of
• General social welfare ethical behavior
− Organizations contribute to charities, philanthropic
organizations, and not-for-profit foundations, among Ethical compliance
other ways. • The extent to which the firm and its
members follow basic ethical standards of
Arguments For and Against Social Responsibility behavior
• Establishment of formal ethics committees
to evaluate current practices

Philanthropic giving
• The awarding of funds or other gifts to
How Government Influences Organizations charities or other social programs

Through direct regulation Informal Organizational Actions

• Establishment of laws and rules that dictate
what organizations can and cannot do Organizational leadership and culture
• Often based on societal beliefs about what − Can define the social responsibility stand
Approaches to Social Responsibility business should or should not be allowed to do adopted by the organization
• Obstructionist stance: Firm does as little as − Sets the tone for the entire organization
possible Through indirect regulation
• Defensive stance: Does only what is legally • For example, providing tax incentives for companies Whistle-blowing
required, nothing more who opened new training centers − The disclosure by an employee of illegal
• Installs equipment but not more expensive or unethical conduct on
equipment that is better Personal contacts the part of others within the organization
• Accommodative stance: Meets legal requirements − How an organization responds often
and goes beyond sometimes indicates its stance on social responsibility
 • First report behavior to boss, then up the A global business: Licensing:
chain of command if nothing is done − Transcends national boundaries and is not committed to • An arrangement whereby one company allows
a single home country another to use its brand name, trademark, technology,
Evaluating Social Responsibility patent, copyright, or other assets in exchange for a
Levels of International Activity royalty based on sales
A corporate social audit • Advantages: Profitability and extended
• It is a formal and thorough analysis of the profitability
effectiveness of a firm’s social performance. • Disadvantages: Inflexibility. Also,
• It is usually conducted by a task force of high-level licensees can take the knowledge and skill
managers from within the firm. and exploit them in the firm’s home market,
• Clearly define all social goals, analyze the resources making the partner a competitor.
devoted to each goal, and determine how well it is
achieving the various goals. Strategic alliance:
• Make recommendations about areas that need Trends in International Business • A cooperative arrangement between two or more
additional attention. • After WW II, the United States dominated global markets. firms for mutual gain
• Approximately 93 percent of the world’s 250 largest War-torn countries had to rebuild from scratch. • Examples include airlines, Disney movies, and food
firms issues annual reports on areas of environmental • Rebuilt countries were poised for growth while U.S. producers
and social responsibility. companies became complacent.
• Increased population and affluence meant consumers Joint Venture:
Chapter Five: Navigating the Global wanted new/better products. • A special type of strategic alliance in which the
partners share in the ownership of an operation an
Environment • Foreign products began flooding the U.S. market and
equity basis
companies had to compete.
• Advantages: Quick entry into market
The Meaning of International Business through utilization of existing strength,
Managing the Process of Globalization
Exporting: access to technology or raw materials,
A domestic business: shared risk and cost of new venture
− Acquires all of its resources and sells all of its • Making a product in the firm’s domestic marketplace and
selling it in another country • Disadvantages: Shared ownership, limited
products or services within a single country control
− Local hair salon, restaurants
Importing:
• Bringing a good, service, or capital into the home Direct investment:
An international business: • When a firm headquartered in one country builds or
− Is based in a single country but acquires meaningful country from abroad
purchases operating facilities or subsidiaries in a
share of its resources and/or revenues from other foreign country
countries Advantages: Easy to enter market with small outlay of
− Walmart, Lowes, Starbucks capital; no need to adapt the product to local conditions
Maquiladoras:
Disadvantages: Subject to taxes, tariffs, and higher • Light assembly plants in northern Mexico given tax
A multinational business: breaks by the Mexican government
− Has a worldwide marketplace from which to buy raw transportation expenses; products may not satisfy needs
materials, borrow money, where it manufactures its of large segment of market; some products may be
restricted Competing in a Global Market
products, and to which it subsequently sells its The functions are the same, whatever a firm’s level of
products international involvement.
− Coca-Cola, Ford • Complexity increases for international
firms.
 • Local firms must compete with Mature Market Economies and Systems Other Economies
multinationals with aggressive globalization • The Middle East defies classification.
goals. Market systems: • These countries hold tremendous wealth yet are
• Complexities are greater for managers in • Clusters of countries that engage in high levels of trade politically unstable and exhibit vast cultural differences.
international firms. with one another • Countries involved in political or ethnic violence are
poor business risks.
• The key question is whether to focus on North American Free Trade Agreement (NAFTA) • Cuba offers a unique opportunity, as it is only now
globalization or regionalism. • An agreement made by the United States, Canada, and emerging into the outside world.
• Most MNCs use both global and local Mexico in 1993 to promote trade with one another. (This • Developing economies have great potential but
resources and activities. agreement was replaced in 2020 by the USMCA). require large investment in distribution systems, and
they run the risk of major policy changes that can
Advantages and Disadvantages of Approaches to United States–Mexico–Canada Agreement (USMCA) distort the value of investment.
Internationalization • A new treaty signed in 2018 that is in the process of
replacing NAFTA The Role of the GATT and the WTO
General Agreement on Tariffs and Trade (GATT)
European Union (EU) • Negotiated in an effort to avoid trade wars
• The first and most important international market system • Intended to promote international trade by reducing
• 27 members nations trade barriers
• 11 countries eliminated their home currencies and • Major stimulus to international trade after ratification
adopted a common currency (the euro); 8 others have in 1948 by 23
since done the same countries
• Not all countries are as equally developed, which has • Identified with most favored nation (MFN) principle
Mature Market Economies and Systems slowed and complicated the relationship • If a country extends preferential treatment
Market economy: to a country, the same preferential
• An economy based on the private Pacific Asia treatment must be extended to all
ownership of business that allows market • A market system located in Southeast Asia signatories of the agreement.
factors such as supply and demand to • China currently the second largest economy in the world
determine business strategy World Trade Organization (WTO)
• United States, Canada, Japan, United High-Potential/High-Growth Economies • Includes 164 member nations and 23 observer
Kingdom, France, Germany, and Sweden High-potential/high-growth: counties
• Rely on market forces in allocation of • Underdeveloped and immature economies • Requires members to open their markets to
resources • Characterized by weak industry, weak currency, and international trade and follow WTO rules
• Characterized by private ownership of relatively poor consumers 1. To promote trade flow by encouraging
property • China, India, Brazil, Russia, Vietnam, and South Africa nations to adopt nondiscriminatory and
• India emerging as a major force in the global economy predictable trade policies
The Global Economy • Currently experiencing strong development and growth 2. To reduce remaining trade barriers
through uniliteral negations
Barriers to international trade: 3. To establish impartial procedures for
• Consumers’ lack of wealth and undeveloped resolving trade disputes
infrastructure
Environmental Challenges of International The Political–Legal Environment Social orientation: A person's beliefs about the
Management relative importance of the individual versus the group
Government stability: to which that person belongs
• Includes the ability to stay in power or has the
permanence of policies toward business Difference Across Cultures
• If nationalized, a company is taken over by the
government

Incentives for multinational trade:

• Include tax cuts, low interest rates, or other subsidies
The Economic Environment Controls on international trade:
Three aspects of the economic environment • A tariff is a tax collected on goods shipped
• Economic system: Freedom of choice of across national boundaries.
consumers and firms to be in the market determines • A quota is a limit on the number or value of
supply and demand. goods that can be traded.
• Nature of property ownership: • An export restraint agreement between
• Private ownership: individuals and governments sets voluntary limits on goods
organizations own and operate the exported or imported from each other.
companies that conduct business. • “Buy national” legislation gives preference to
• Public ownership: the government domestic producers.
directly owns the companies (utilities,
infrastructure). An economic community is a set of countries that agree
to markedly reduce or eliminate trade barriers among
Natural resources member nations. Globalization and Organization Size
• Vary by country • A formalized market system Multinational corporations (MNCs)
• Access to and use of natural resources • The European Union (EU) − Adopt a global perspective and compete in the
• USMCA (United States-Mexico-Canada global marketplace
Infrastructure Agreement)
• The schools, hospitals, power plants, • The Latin American Integration Association Medium-size organizations
railroads, • The Caribbean Common Market − Remain primarily domestic but may buy and sell
• highways, ports, airfields, and distribution products made abroad and may face foreign
systems make up infrastructure The Cultural Environment competition in their own domestic market
• Can be highly developed or poorly The cultural environment:
developed • Values, symbols, beliefs, and language differ from one Small organizations
• Firms interested in business where poorly country to another. − Participate as local suppliers to MCCs, and some
developed, may have to build towns, • Different cultures value time differently. perform simple importing/exporting
schools, airports, and so on to attract • Language can pose a barrier.
overseas workers • Both spoken words and nonverbal aspects of Management Challenges in a Global Economy
• Economic link to state of infrastructure and supply of language can pose problems for managers. Planning and decision making:
natural resources, and to the conditions of the natural • Managers need a broad understanding of the
environment environment and competition in order to plan.
• Critical issues in the environment must be Purposes of Goals • Tactical goal: Set by and for middle managers
addressed. Goals serve four important purposes: • Focus is on actions necessary to achieve
1. Goals provide guidance and a unified direction. strategic goals
Organizing: • Where the organization is going and why • Operational goal: Set by and for lower-level
• Degree of control determines local managers ability managers
to address difficulties of organizing 2. Goal setting affects other aspects of planning. • Focus is on short-term issues associated
• Must address basic issues such as organization • Effective goal setting promotes good planning. with tactical goals
structure and design, managing change, dealing with • Good planning facilitates future goal setting.
human resources Kinds of Goals: Area and Time Frames
3. Specific and moderately difficult goals can motivate Area:
Leading: employees. • Organizations set goals for different areas.
• Managers must understand how cultural factors • Especially true if likely to result in reward • Operations, marketing, finance, quality control,
affect individuals, motivation, the role of leadership, productivity, human resources
communication, and interpersonal and group 4. Goals provide an effective mechanism for evaluation
processes. and control. Time frame:
• Used to assess performance of organization and • Organizations set goals across different time frames.
Controlling: employees • Long-term goals (strategic),
• Basic issues revolve around operations intermediate-term goals (tactical),
management, productivity, quality, technology, and Kinds of Organizational Goals for a Regional Fast-Food and short-term goals (operational level)
information systems. Chain
Responsibilities for Setting Goals
Chapter Six: Basic Elements of • Responsibilities for setting goals:
Who sets goals?
Planning and Decision Making - All managers
- Managers are responsible for
Decision Making and Planning setting goals that correspond to
their level in the organization.
Decision making: • Managing multiple goals:
• Is the cornerstone of planning Sometimes goals conflict.
• Is the catalyst that drives the planning process - Optimizing involves balancing
• Underlies the formulation and implementation of all and reconciling possible
plans conflicts among goals.
- Managers look for
Planning: inconsistencies and
• Occurs within an environmental context decide to pursue one goal at the
Goals vary by level, area, and time frame. exclusion of another.
Mission:
• A statement of an organization's fundamental Kinds of Goals: Level Kinds of Organizational Plans
purpose, premises, values, and directions Goals are set for and by different levels. •Strategic plan:
• Leads to goals and plans • Mission statement: States an organization’s A general plan outlining decisions of
fundamental purpose resource allocation, priorities, and action
The Planning Process • Strategic goal: Set by and for top management steps necessary to reach strategic goals
• Focus is on broad, general goals
•Tactical plan: − Probably single most important person in the planning developed to implement specific parts of a strategic
A plan aimed at achieving tactical goals, process plan.
developed to implement parts of a strategic − Responsible for implementing the strategy
plan Developing Tactical Plans
• Executive committee:
•Operational plan: − Top management provide input to the CEO and review Tactical plans:
• Focuses on carrying out tactical plans to strategic plans • Vary from situation to situation
achieve operational goals − Includes task forces that concentrate on specific • Must address tactical goals derived
projects or issues from strategic goals
Time Frames for Planning • Must specify resources and time
• Long-range plan • Line management: frames
− Commonly five years or more but can be decades − Provide valuable inside information and execute the • Specify precisely what activities
− Complexity of the environment makes long-range plans developed by will be undertaken to achieve the
planning difficult top management goal
• Requires the use of human resources
• Intermediate plan Contingency Planning and Crisis Management • Managers must be in a position
− Generally covers from one to five years • Contingency planning: to receive information from within
− Especially important for middle managers and The determination of alternative courses of and outside the organization,
central focus of planning activities action to be taken if an intended plan is unexpectedly process that information, and
disrupted or rendered inappropriate pass it on to others who need to
• Short-range plan use it.
− It covers a span of one year or less. • Crisis management:
− An action plan operationalizes any other plan. The set of procedures the organization uses in Executing Tactical Plans
− A reaction plan reacts to unforeseen events. the event of a disaster or other unexpected calamity Success depends on the way a plan is carried out:
• Requires astute use of resources, decision making,
Responsibilities for Planning Contingency Planning and insight
• Planning staff: 1. Managers need to evaluate every
− Coordinates planning and provides tools; takes a possible course of action in light of goals.
broad view and crosses departments
− Planning can be more efficient by diffusing planning 2. They must ensure that each decision
responsibility throughout the organization. maker has the information and resources necessary
to get the job done.
• Planning task force:
− Includes line managers and members of planning ▪ Vertical and horizontal communication and
staff integration of activities
− Represents each major unit within the company Developing and Executing Tactical Plans
3. Monitor ongoing activities to make sure
• Board of directors: they are achieving desired results.
− Establishes mission and strategy
Operational Plans
• Chief executive officer: Single-use plans:
− Usually president or chair of the board • Developed to carry out a course of action
• Tactical plan: A plan aimed at achieving tactical goals, that is not likely to be repeated in the future
• Most common forms: Chapter Seven: Managing Strategy and
• Programs: Single-use plans for large set Using Goals to Implement Plans Strategic Planning
of activities
• Opening new facilities, changing Management by objectives (MBO) The Nature of Strategic Management
organization mission • A formal goal-setting process involving collaboration • Strategy: A comprehensive plan for accomplishing
• Projects: Single-use plan of less scope between managers and subordinates an organization’s goals. An organization’s strategy is
and complexity than a program • The extent to which goals are accomplished is a major a comprehensive plan that describes the set of
• Part of a broader program or factor in evaluating and rewarding subordinates’ alternatives from which an organization chooses as it
self-contained performance. seeks to achieve its goals.
• Introduce new product, add new • Purpose: Give subordinates a voice in the goal-setting • Strategic management: A comprehensive and
benefits and planning process, and to clarify exactly what they are ongoing management process aimed at formulating
expected to accomplish and implementing effective strategies; a way of
Standing plans: • Process: To be successful, goal-setting must start at the approaching business opportunities and challenges.
• Developed for activities that recur regularly over a top of the organization. An effective strategy aligns the organization with its
period of time • Implement: Consistent with overall organizational goals environment and positions it to achieve strategic goals.
• Enhances efficiency of decision-making routine and plans • Effective strategies: A strategy that promotes a
• Policies, standard operating superior alignment between the organization and its
procedures, rules and regulations The Formal Goal-Setting Process environment and the achievement of strategic goals.
Strategic management is a thorough, ongoing process
• Most common forms: for developing and implementing strategies.
• Policies: A standing plan that specifies
the organization’s general response to a The Components of Strategy
designated problem or situation • Distinctive competence: An organizational strength
possessed by only a small number of competing firms.
• Most common forms (cont.): is something the organization does very well—better
• Standard operating procedure (SOP): A standing than its competitors. For example, if a technology
plan that outlines steps to be followed in particular company designs software with a better user interface
circumstances The Effectiveness of Formal Goal-Setting
(UI) than competing software, it has a distinctive
• Leaves of absence, credit card Strengths (Success)
competence in UI.
approval • Improved motivation
• Scope: When applied to strategy, it specifies the
• Rules and regulations: Describe exactly how • Enhanced communication
range of markets in which an organization will
specific activities are to be carried out • Allows for objective performance appraisals
compete. The scope of an organization’s strategy
• How to process paperwork, how to utilize • Focuses on appropriate goals and plans
describes the types of markets in which the
benefits • Identifies managerial talent
organization will compete. A company, for example,
• Rules and regulations and SOPs are similar: • Facilitates control
might choose to manufacture casual sports attire;
• Relatively narrow in scope manufacture sports equipment; or manufacture sports
• Can serve as a substitute for decision Weaknesses (Failure)
attire and equipment, and operate sports arenas.
making • Poor implementation
Those are all different scopes of strategy.
• Lack of top management support
• Resource deployment: How an organization
Barriers to Goal Setting and Planning • Overemphasizing quantitative goals
distributes its resources across the areas in which it
• Assigned goals lead to resentment and lack of
competes. Resource deployment is how the
Commitment
organization will allocate various resources across the
businesses competing in different markets. A financial opportunities and threats.
services company might choose to invest more in Deliberate strategy
retirement planning, invest less in mortgage lending, • A plan of action that an organization chooses and Evaluating an Organization’s Strengths
and withdraw completely from brick-and-mortar retail implements to support specific goals Organizational strengths:
banking. • Rational, systematic, and planned. • Skills or capabilities enabling an organization to
When managers know the organizational goals they want conceive of and implement its strategies
Levels of Strategy to support, the process of formulating and implementing
• Most businesses today develop strategies at two strategy is systematic and planned, and the result is a • SWOT analysis divides strengths into common
distinct levels: deliberate strategy. strengths and distinctive competencies:
• A common strength is a skill or capability held by
1. Business-level strategy: The set of strategic Emergent strategy numerous competing firms. Common strengths are
alternatives from which an organization chooses as it • A pattern of action that develops over time in an possessed by most or all organizations in a market
conducts business in a particular industry or market. organization in the absence of mission and goals, or and do not provide a competitive advantage. For
Business-level strategy concerns how the despite mission and goals example, if all large retailers can purchase
organization competes in a given industry or market. • Allocating resources even though an organization has merchandise from wholesalers at the same bulk
Many organizations limit themselves to one business- not explicitly chosen this strategy. discount, then this is a common strength.
level strategy. When an organization chooses to allocate resources in an • Competitive parity exists when large numbers of
unexpected direction, outside any established mission competing firms can implement the same strategy.
2. Corporate-level strategy: The set of strategic and goals, an emergent strategy arises.
alternatives from which an organization chooses as it Distinctive competence: Strength possessed by a
manages its operations simultaneously across several Using SWOT Analysis to Formulate Strategy small number of firms
industries and several markets. Organizations that are • Organizations that exploit these
active in multiple industries and markets also need a • SWOT competencies often obtain a competitive
corporate-level strategy, which identifies and − An acronym that stands for strengths, weaknesses, advantage.
prioritizes the industries and markets of interest. opportunities, and threats Distinctive competencies are possessed by only one
or a few organizations, and they give the
Strategy Formulation and Implementation • SWOT analysis is a careful evaluation of an organizations that have them a competitive advantage.
• Drawing a distinction between strategy formulation organization’s internal strengths and weaknesses as well For example, if a technology company employs
and strategy implementation is also instructive. as its environmental opportunities and threats. several engineers who are innovative leaders in
certain kinds of development, this workforce is a
Strategy formulation • In SWOT analysis, the best strategies accomplish an distinctive competency of that company. Other
• The set of processes involved in creating or organization’s mission by (1) exploiting an organization’s organizations may engage in strategic imitation to
determining an organization’s strategies; it focuses on opportunities and strengths while (2) neutralizing its gain the same distinctive competency. If the
the content of strategies. When managers decide threats and (3) avoiding (or correcting) its weaknesses. competency cannot be imitated, then the organization
what the organization’s strategy is, they are engaged with that strength has a sustained competitive
in strategy formulation. SWOT Analysis advantage.
SWOT analysis is a
Strategy implementation careful evaluation of Strategic imitation: Duplicating another’s
• The methods by which strategies are an organization’s competence into a valuable strategy
operationalized or executed within the origination; it internal strengths
focuses on the processes through which strategies and weaknesses as Sustained competitive advantage: Exists after all
are achieved. Strategy implementation refers to the well as its attempts at strategic imitation have ceased
methods used to execute the strategy. environmental
Evaluating an Organization’s Weaknesses • Essential for long-term survival. Focus on
Organizational weaknesses: Differentiation strategy: An organization seeks to product differentiation and search for new
• A skill or capability that does not enable an distinguish itself from competitors through the quality of its products
organization to choose and implement products or services. • Decline stage: Demand for the product or
strategies that support its mission technology decreases, the number of organizations
• Organizational members reluctant to focus Overall cost leadership strategy: An organization producing the product drops, and total sales drop.
on weaknesses attempts to gain a competitive advantage by reducing its • Organizations can do well in this stage if
• Reluctant to admit they do not possess all costs below the costs of competing firms. costs are kept low.
the skills and capabilities needed
Organizational weaknesses are skills and capabilities Focus strategy: An organization concentrates on a The Product Life Cycle
that do not allow an organization to use effective specific regional market, product line, or group of buyers.
strategies, and may even inhibit effective strategy.
The Miles and Snow Typology
An organization may take two approaches to address Prospector strategy: A strategy in which the firm
a weakness: encourages creativity and flexibility and is often
• Invest resources to reduce the weakness or decentralized
turn it into a strength. Defender strategy: A strategy in which the firm focuses
• Change its mission so that the weakness is on lowering costs and improving the performance of
no longer relevant. current products
Analyzer strategy: A strategy in which the firm tries to
Two ways to address: Invest to obtain strengths or maintain its current businesses and to be somewhat Implementing Porter’s Generic Strategies
modify mission innovative in new businesses Differentiation strategy:
Reactor strategy: A strategy in which a firm has no • Marketing and sales emphasizes high-quality, high-
Competitive disadvantage: Organization is not consistent approach to strategy value image of products or services.
implementing valuable strategies that are being • Accounting controls the flow of funds without
implemented by competing organizations. Strategies Based on the Product Life Cycle discouraging creativity.
Weaknesses give an organization a competitive • Introduction stage: Demand may be very high and • Manufacturing emphasizes quality and meeting
disadvantage, and it can expect to achieve lower than sometimes outpaces the firm’s ability to supply the customer needs.
average performance. product • The culture must emphasize creativity, innovation,
• Demand is high, and managers focus on and response to customer needs.
Evaluating an Organization’s Opportunities and getting products “out the door” without
Threats sacrificing quality. Overall Cost Leadership Strategy
• Organizational opportunity: An area in the • Growth stage: More firms begin producing the product, Implementing Porter’s overall cost leadership
environment that, if exploited, may generate higher and sales continue to grow. strategy:
Performance • Threat to competitive advantage, and • Marketing focuses on product attributes meeting
strategies to slow the threat of new customer needs in a low-cost, effective manner.
• Organizational threat: An area that increases the competitors are important • Accounting reduces costs through tight controls.
difficulty of an organization performing at a high level • Manufacturing reduces per-unit costs by increasing
• Maturity stage: Overall demand growth for the product volume of production.
Porter’s Generic Strategies begins to slow down, and the number of new firms • Culture focuses on improving efficiencies.
• According to Harvard’s Michael Porter, organizations producing the product begins to decline.
may pursue a differentiation, overall cost leadership, Implementing Miles and Snow’s Strategy
or focus strategy at the business level.
• Decentralization facilitates prospectors Related Diversification • An organization begins activities formerly conducted
• Encourages creativity and flexibility Related diversification: A strategy in which an by its customers.
• Prospectors often switch to defenders organization operates in several businesses that are • Used to acquire complementary products or services,
• Defenders downplay creativity, focusing on costs linked with one another linked by common technology and common
and improving performance • It reduces an organization’s dependence on customers
• Analyzers maintain current business and must be any one of its business activities and thus reduces • Creation or exploitation of synergies
somewhat innovative economic risk.
• Tight financial controls and high flexibility, efficient • By managing several businesses at the same Merger:
production, and customized products time, an organization can reduce the overhead costs • The purchase of one firm by another firm of
associated with managing any one business. approximately the same size
Formulating Corporate-Level Strategies • It allows for the exploitation of strengths and
• Decisions about which businesses, industries, and capabilities in more than one business. Acquisition:
markets an organization will enter, and how to • When organizations do this successfully, they • The purchase of a firm by a firm that is considerably
manage these different businesses, are based on an capitalize on synergy. larger
organization’s corporate strategy. • Acquired firm’s “identity” often disappears altogether
Unrelated Diversification
• The most important strategic issue at the corporate −Unrelated diversification: A strategy in which an Managing Diversification
level organization operates multiple businesses that are not • Portfolio management techniques: Methods that
concerns the extent and nature of organizational logically associated with one another diversified
diversification. Advantages: organizations use to determine which businesses to
• Achieve stable performance over time due engage in and how to manage these businesses to
Diversification: The number of different businesses business cycle differences among the multiple maximize corporate performance
that an organization is engaged in and the extent to businesses.
which these businesses are related to one another • Resources can be allocated to areas with Two important portfolio management techniques:
the highest return potentials to maximize • BCG matrix
There are three types of diversification strategies: corporate performance. • GE Business Screen
• Single-product strategy Disadvantages:
• Related diversification • Lack of knowledge of the unrelated BCG Matrix
• Unrelated diversification businesses BCG matrix:
• Failure to exploit synergy, creating A framework for evaluating businesses relative to the
Single-Product Strategy competitive disadvantage growth rate of their market and the organization’s
• Single-product strategy: A strategy in which an share of the market
organization manufactures just one product or service Becoming a Diversified Firm • Dogs: Businesses that have a very small
and sells it in a single geographic market • Some firms diversify by developing new products and share of a market that is not expected to
services. grow
• Strength: By concentrating its efforts so completely • Firms can also diversify by replacing former suppliers • Cash cows: Businesses that have a large
on one product and market, a firm is likely to be very and customers. share of a market that is not expected to
successful in manufacturing and marketing that grow substantially
product. Backward vertical integration: • Question marks: Businesses that have
• An organization conducts activities formerly conducted only a small share of a fast-growing market
• Weakness: If the product is not accepted by the by its suppliers. • Stars: Businesses that have the largest
market or is replaced by a new one, the firm will suffer. share of a rapidly growing market
Forward vertical integration:
The BCG Matrix • Economies of scale lower the per unit maker understands the situation driving the decision.
cost of production due to large quantities.
• Economies of scope lower the cost per Decision making is the act of choosing one alternative
unit by sharing expenses across product from among a set of alternatives. The decision-
lines. making process includes several steps:
• Multimarket flexibility:
• Gives firms the ability to respond to change 1. Recognizing and defining the nature of a
in one region by making changes in other regions decision situation. First, the manager needs to
• Worldwide learning: appreciate that a decision needs to be made.
• Gives firms the advantage of adopting 2. Identifying alternatives. If there is only one
GE Business Screen best practices from wherever they originate possible course of action, then no decision needs to
GE Business Screen: A method of evaluating • Firms are not usually able to exploit all three advantages be made; the manager does the only thing that can be
businesses along two dimensions. simultaneously. done. Almost always, however, there are multiple
1. Industry attractiveness options.
2. Competitive position Strategic Alternatives for International Business 3. Choosing the most effective alternative. To
Home replication strategy: make this judgment, the manager needs to have a
• In general, the more attractive the industry and the • A company uses the core competency it developed at clear definition of effectiveness as it applies to the
more competitive the position, the more an home as its main competitive weapon. situation. For example, in one situation, the most
organization effective decision is one that minimizes costs, while in
should invest in a business. Multidomestic strategy: another situation, the most effective decision is one
• A company manages itself as a collection of subsidiaries, that maximizes market share.
The GE Business Screen each with a domestic market. 4. Putting the decision into effect. The
manager makes a plan to translate the decision into
Global strategy: actions.
• A company views the world as a single marketplace,
standardizing products to address the needs of customers Consider this example:
worldwide. 1. The manager of a call center learns that a
high proportion of dissatisfied customers demand
Chapter Eight: Managing refunds and are unwilling to give the company a
chance to fix the problem.
Developing
International and Global Decision Making 2. The manager gathers information, and
Strategies several alternatives emerge. The call center could
• Managers of international firms face more Decision Making Defined assign dissatisfied customers to a select few
complexity and uncertainty when formulating Decision making: representatives who are especially good at handling
strategies. − The act of choosing one alternative from among a set of such calls. The company could also offer customers
• However, they may exploit three sources of alternatives substantial discounts if they agree to give the
competitive advantage: company another chance.
• Global efficiencies Decision-making process: 3. Based on experience, the manager has
• Multimarket flexibility − Recognizing and defining the nature of a decision confidence in the ability of her best representatives to
• Worldwide learning situation, identifying alternatives, choosing the best deal with upset customers. At the same time, she is
• Global efficiencies include: alternative, and putting it into practice concerned that discounts would cost the company too
• Location efficiencies allow firms to locate − The word “best” implies effectiveness much money. She decides to set up a workflow that
wherever they can obtain cost advantage. − Effective decision making requires that the decision routes upset customers to select representatives.
4. The manager works with the technology and State of certainty: possible and approach the situation from a logical and
training teams to develop a way to screen and route ▪ A condition in which the decision maker knows with rational perspective.
customers appropriately. reasonable certainty what the alternatives are and
what conditions are associated with each alternative Under a state of uncertainty, the manager knows
Types of Decisions ▪ Few organizational decisions are made under conditions neither all the alternatives, nor their associated risks,
• Most decisions fall into one of two categories: of true certainty. nor their likely outcomes. The risk of making a
1. Programmed decisions: mistake is high in this condition. In today’s highly
▪ A decision that is relatively structured or recurs with Under a state of certainty, the manager has a thorough dynamic business environment, a state of uncertainty
some frequency (or both). Clearly structured and/or understanding of the alternatives. A state of complete dominates the decision-making landscape, especially
arise frequently. For example, if a call center has a certainty is rare in the business world. for high-level managers setting strategy.
rule that upset customers are to be transferred to a
supervisor, when a representative realizes a customer • Decision Making under Risk The Classical Model of Decision Making
is angry, he makes a programmed decision to transfer State of risk: • Classical decision model:
the customer. ▪ A condition in which the availability of each alternative • A perspective approach to decision making that tells
▪ Example: starting your car in the morning and its potential payoffs and costs are all associated with managers how they should make decisions; it
2. Non-programmed decisions: probability estimates assumes
▪ A decision that is relatively unstructured and occurs ▪ Decision making under conditions of risk is their decisions will be in the organization’s best
much less often than a programmed decision. accompanied by moderate ambiguity and the chances of interests
Unprogrammed decisions are new and unstructured. a bad decision. • Assumes decision makers have complete
In other words, it is not immediately clear what action ▪ Examples: contract negotiations, choosing health information
should be taken. The manager must invest a great insurance for employees • They can effectively eliminate uncertainty
deal of capacity into understanding the situation and • They evaluate all aspects logically and
rely on intuition to make the decision. For example, as Under a state of risk, the availability of each alternative rationally
television executives decide how to handle the loss of and its pros and cons have associated probability
market share to customers who prefer to stream estimates. For example, a corporate supplies buyer The Classical Model of Decision-Making
shows via the internet, they are making a series of knows that buying a single laptop costs a certain amount,
unstructured decisions, since this problem has never whereas buying at least 10 laptops gets a 20 percent
been solved before. discount but requires a much larger total expenditure.
▪ Example: choosing a vacation destination Based on experience, the buyer believes the company will
probably (80 percent chance) need at least 10 laptops in
the next few months and, therefore, spending the money Steps in Rational Decision Making
Decision-Making Conditions for a bulk purchase to get the discount is worthwhile.
However, if the buyer is mistaken (20 percent chance),
the company will have tied up a lot of cash in laptops it
doesn’t need.

• Decision Making under Uncertainty

State of uncertainty:
Steps in the Rational Decision-Making Process
▪ A condition in which the decision maker does not know
all the alternatives, the risks associated with each, or the
likely consequences of each alternative
Decision-Making Conditions ▪ To make effective decisions in these circumstances,
• Decision Making under Certainty managers must acquire as much relevant information as
 inconvenience, and fear of the unknown 2. Be committed to “fact-based” decision making—
• Issues can develop after implementation which means being committed to getting the best
has begun, evidence and using it to guide actions.
including unexpected cost increases, less- 3. Treat your organization as an unfinished
than-perfect fit with existing subsystems, prototype—encourage experimentation and learning
cash flow or operating expense issues by doing.
• Follow up and evaluating results 4. Look for the risks and drawbacks in what people
• Evaluate effectiveness of decision. Did the recommend.
alternative serve its original purpose? 5. Avoid basing decisions on untested but strongly
These are the steps in the rational decision- held beliefs, what you have done in the past, or
Evidence-Based Management uncritical “benchmarking” of what “winners” do.
making process:
• Evidence-based management (EBM):
1. Recognize and define the decision
− A commitment to finding and using the best theory and The Administrative Model
situation. Based on a stimulus (some event or data available at the time to make decisions • Administrative model:
new information), realize a decision needs to be − Rational perspectives on decision making have − Argues that decision makers (1) use incomplete and
made. recently been reformulated under the concept of EBM. imperfect information, (2) are constrained by bounded
2. Identify alternatives. The number of • Especially persuasive when EBM is used to question the rationality, and (3) tend to “satisfice” when making
alternatives should rise in proportion with the outcomes of decisions based on strongly held beliefs. For decisions
importance of the decision. example, pay-for-performance policies will motivate high
3. Evaluate the alternatives. For each, performers. • Bounded rationality:
consider how feasible it is, how well it’s likely to − A concept suggesting that decision makers are
address the problem or opportunity (how Evidence-based management (EBM) is a rigorous limited by their values and unconscious reflexes, skills,
satisfactory it is), and what its consequences are process for making the best decisions possible. Here are and habits.
likely to be. five principles of EBM as proposed by Jeffrey Pfeffer and
4. Choose the best alternative, that is, the Robert I. Sutton: Managers are also limited by bounded rationality,
one most appropriate to the situation. • Build an organizational culture in which people meaning that instead of using the purely logical
feel it is safe to tell the truth, even when it’s unpleasant. approach assumed by the classical model, their
5. Implement the chosen alternative,
• Commit to using the best evidence available to thinking is influenced by values, unconscious reflexes,
working with other people or departments as
guide decision making. skills, and habits.
needed. This step often involves an operational • Encourage a spirit of experimentation, in which
plan, as well as a contingency plan if things members of the organization feel comfortable trying things • Satisficing: − The tendency to search for
don’t go as expected. out to learn whether they work. alternatives only until one is found that meets some
6. Evaluate the results. Perhaps the • Critically examine recommendations for minimum standard of sufficiency
chosen alternative was the right one, or could downsides.
work if implemented differently, or maybe a • Avoid relying on your opinions, your own • The classical and administrative models can each
different alternative should be tried. In some organization’s past practice, or the uncritical adoption of be used to better understand how managers make
cases, the manager will decide they were on the the practices of successful organizations. decisions.
wrong track altogether and that the entire • The classical model explains how managers can at
problem needs to be redefined. Five Principles of Evidence-Based Management: least attempt to be more rational and logical in their
Steps in Rational Decision Making 1. Face the hard facts and build a culture in which people approaches to decisions.
• Implementing the chosen alternative are encouraged to tell the truth, even if it’s unpleasant. • The administrative model can be used by managers
• Plan for resistance from employees due to to develop a better understanding of their inherent
insecurity, biases and limitations.
 • Each component of managerial ethics (relationships of they vote, with the highest-ranking alternative
When managers satisfice, they stop looking at the firm to its employees, of employees to the firm, and of representing the group’s consensus opinion.
alternatives once they’ve found one that is good the firm to other economic agents) involves a wide variety
enough, instead of examining alternatives until the of decisions, all of which are likely to have an ethical Advantages and Disadvantages of Group and Team
best is found component Decision Making
• Personal ethical standards will shape how we respond
and proceed with our decision-making process

Forms of Group and Team Decision Making

• Interacting group or team:
Political Forces in Decision Making − A decision-making group or team in which members
• Coalition: openly discuss, argue about, and agree on the best
− An informal alliance of individuals or groups formed alternative. In an interacting group/team,
to members discuss the issue, finding points of agreement Disadvantages of group and Team Decision Making
achieve a common goal and disagreement, until they reach consensus. An • Groupthink:
− The common goal is often a preferred decision advantage is that the discussion prompts new ideas. A − A situation that occurs when a group or team’s
alternative disadvantage is that political processes, such as the desire for consensus and cohesiveness overwhelms
− The impact of coalitions can be either positive or formation of coalitions among some members of the its desire to reach the possible decision
negative group, tend to play too large a role. − Agreeing with the decision because it is easier, not
− Managers must recognize when to use coalitions, • Delphi group: necessarily the right or best decision.
how to assess whether coalitions are acting in the − A form of group decision making in which a group − Results in a group decision of one person’s opinion
organization’s best interests, and how to constrain arrives at a consensus of expert opinion. In a Delphi ▪ Example: NASA Challenger disaster
their dysfunctional effects group, experts first contribute their opinions individually,
without influencing each other. The group coordinators Managing Group and Team Decision-Making
Intuition and Escalation of Commitment determine the average position of the group and present it Processes
• Intuition: to each expert, asking for another opinion. Experts who • Be aware of the pros and cons of having a group or
- An innate belief about something without conscious offered extreme opinions in the first round also explain team make a decision.
consideration those opinions. When all the experts are in agreement, • Set deadlines for when decisions must be made.
• Escalation of commitment: that position is considered the consensus opinion. This • Avoid problems with dominance by managing group
- When a decision maker stays with a decision even technique has been used successfully, but it is time- membership.
when it appears to be wrong consuming and expensive (although today’s ability to • Have each group or team member critically evaluate
interact digitally facilitates the process). all alternatives.
Risk Propensity and Decision Making • As a manager, do not make your position known too
• Risk propensity: • Nominal group: early.
- The extent to which a decision maker is willing to − A structured technique used to generate creative and • Assign the role of devil’s advocate to at least one
gamble when making a decision innovative alternatives or ideas. In a nominal group, the group or team member.
• Managers who are willing to take risks are more group members meet but—unlike in the interacting • Hold a follow-up meeting to recheck the decision
likely than their conservative counterparts to achieve group—do not freely discuss the issue. Instead, they
big successes with their decisions; they are also more individually write down all the alternatives they can think Chapter Nine: Entrepreneurship
likely to incur greater losses of. These are then written where everyone can see them,
such as on a flip chart, whiteboard, or shared document.
and
Ethics and Decision Making Then the group has a more open discussion, and finally New Venture Management
 • Jobs are created by entrepreneurial companies of all • Each industry group differs in its requirements for
The Meaning of Entrepreneurship sizes, all of which hire workers and all of which lay them employees, money, materials, and machines
• Entrepreneurship: The process of planning, off.
organizing, operating, and assuming the risk of a − Although small firms often hire at a faster rate Small Business By Industry
business venture than large ones, they are also likely to eliminate
• Entrepreneur: Someone who engages in jobs at a far higher rate.
entrepreneurship − Small firms are also usually the first to hire in
• Small business: A business that is privately owned times of economic recovery, whereas large
by one individual or a small group of individuals and firms are generally the last.
has sales and assets that are not large enough to Innovation
meaningfully influence its environment • Major innovations are as likely to come from small
• Start-up or new venture: A relatively new small businesses as from big businesses
business − Small businesses consistently supply over half of all
“innovations” introduced into the U.S. marketplace each Economies of Scale
The Role of Entrepreneurs, Start-Ups, and New year • Research shows that manufacturing costs often fall
Ventures in Society − Much of what is created in the high-technology sectors as the number of units produced by an organization
• The majority of new businesses fail within the first comes from start-up companies increases.
few years of founding. − This relationship between cost and production is
• Long hours, little income, poor planning Importance to Big Business called an economy of scale
• Most U.S. businesses employ fewer than 100 people, • Most of the products made by big manufacturers are − Small organizations usually cannot compete
and most U.S. workers are employed by small firms. sold to customers through small businesses effectively on the basis of economies of scale
• The majority of small businesses are owner- − Small businesses provide big businesses with many of − Organizations with higher levels of production have
operated. the services, supplies, and raw materials they need. For a major cost advantage over those with lower levels of
• Small business is a strong presence in mature example, car dealerships, bottled soda and tea, production
economies and will be quite important in emerging technology − When technology in an industry changes, it often
economies. − Large businesses outsource many routine business shifts the economies-of-scale curve, thereby
• The contribution of small business can be measured operations such as packaging, delivery, and distribution to creating opportunities for smaller organizations
in terms of its effects on key aspects of an economic smaller companies
system, including job creation, innovation, and Economies of Scale in a Small Business
importance to big business. Choosing an Industry
• The major industry groups that include successful new
Job Creation ventures and small businesses are:
• Small business—especially in certain industries—is • Services: Require few resources, and are the fastest-
an important source of new (and often well-paid) jobs growing segment
in the United States. • Retailing: Products manufactured by other firms, sold
• Seven of the ten industries that added the most new directly to consumers
jobs in 2019 were in sectors dominated by small • Construction: Relatively small, local projects
• Financial and insurance: Often individuals affiliated Emphasizing Distinctive Competencies
businesses. • The distinctive competencies of small businesses
• Small businesses currently account for over one- with national companies
• Wholesaling: Buys from manufacturers and sells to usually fall into three areas:
third of all jobs in high-technology sectors of the 1. The ability to identify new niches in
economy. producers or retailers
• Transportation: Taxis, Uber, Lyft, charter airlines established markets
• Manufacturing: Cost of equipment and start up high 2. The ability to identify new markets
 3. The ability to move quickly to take 2. What strategies will the entrepreneur use to obtain − Success or failure depends heavily on identifying a
advantage of new opportunities these goals and objectives? genuine business opportunity—a product for which
3. How will the entrepreneur implement these strategies? many customers will pay well but which is currently
• Identifying Niches in Established Markets unavailable to them
− Established market: • An important component of the overall business plan − To find openings, entrepreneurs must study markets
▪ A market in which several large firms is financial planning, which translates all other activities and answer the following questions:
compete according to relatively well-defined into dollars. ▪ Who are my customers?
criteria • Generally, the financial plan is made up of: ▪ Where are they?
− Niche: • A cash budget (tells entrepreneurs how much ▪ At what price will they buy my product?
▪ A segment of a market not currently being money they need before they open for business ▪ In what quantities will they buy?
exploited and how much money they need to keep the ▪ Who are my competitors?
▪ Luxury items, custom made items business operating) ▪ How will my product differ from those of my
• An income statement competitors?
• Identifying New Markets • A Balance sheet
− Discovery of new markets can happen in at least • A break-even chart Financing the New Business
two ways: Personal Resources:
1. An entrepreneur can transfer a product or Starting The New Business − Using your own money and money borrowed from
service that is well established in one • After choosing a product and making sure that the friends and relatives to finance the business
geographic market to a second market choice fits their own skills and interests, entrepreneurs
2. Entrepreneurs can sometimes create must decide whether to buy an existing business or to Strategic Alliances:
entire industries start from scratch. − Partnering with established firms, such as suppliers,
− Consultants often recommend the first in a mutually beneficial relationship
• First-mover advantage: approach because the odds are better
− Any advantage that comes to a firm because it Lenders:
exploits an opportunity before any other firm does • Buying an Existing Business − Obtaining funding from traditional lenders (e.g.,
▪ Companies such as Microsoft, Apple, and − If successful, an existing business has already proved banks, independent investors, and government loans)
Amazon established first-mover advantage its ability to draw customers at a profit
− It has established working relationships with lenders, Venture capital companies:
Writing a Business Plan suppliers, and the community − Groups of small investors seeking to make profits
• Business plan: − The track record of an existing business gives potential on companies with rapid growth potential
− A document that summarizes the business strategy buyers a much clearer picture of what to expect than any − Most of these firms do not lend money: They invest
and structure estimate of a new business’ prospects it, supplying capital in return for stock
− The plan should describe the match between the − Franchises are often a good way to start a small
entrepreneur’s abilities and the requirements for business for these reasons Crowdfunding:
producing and marketing a particular product or − Post ideas online where would-be investors can
service. • Starting from scratch view and support
− It should define strategies for production and − A new business does not suffer the ill effects of a Networking:
marketing, prior owner’s errors • Women and minorities especially benefit from this
legal aspects and organization, and accounting and − The start-up owner is free to choose lenders, equipment,
finance. inventories, locations, suppliers, and workers, unbound by • Small-Business Investment Companies (SBICs):
a predecessor’s commitments and policies − Investor-owned companies that borrow money from
• A business plan should answer three questions: − The risks of starting a business from scratch are the Small Business Administration (SBA) which
1. What are the entrepreneur’s goals and objectives? greater than those of buying an existing firm
provides loans to small businesses with potential for • Franchisers benefit from the ability to grow rapidly by • Acquisition of managerial competence through
rapid growth using the investment money provided by franchisees. training or experience or by using the expertise of
− Minority enterprise small-business investment • The franchisee does not have to build the business step others
companies (MESBICs) specialize in financing by step; it is virtually established overnight.
businesses that owned and operated by minorities • Because each franchise outlet is a carbon copy of every
other outlet, the chances of failure are reduced.
• SBA Financial Programs:
− Provide assistance (e.g., SBA-guaranteed loans) for Disadvantages
small businesses unable to get private financing at • Some franchises have a significant start-up cost.
reasonable terms • There is loss of independence for the franchisee due to
the imposed operational controls of the franchiser.
Sources of Management Advice • Many franchise agreements are difficult to terminate.
• Advisory Boards:
− Provide advice and assistance Trends in Start-Ups and New Ventures
• Emergence of e-commerce: Considered to be one of
• Management Consultants: the most significant trend for new ventures. Can create
− Experts who charge fees to help managers solve and expand new business faster and more easily than
problems ever
− Often specialize in one area, such as international • Crossovers from big business: Leaving a big business
business or small business and using that knowledge to work for yourself
− Can be quite expensive • Opportunities for minorities and women: About 29
percent of all businesses in the U.S. are owned by women,
• The Small Business Administration: African American owned businesses increase 34.9
− Service Corps of Retired Executives (SCORE) percent since 2007. Other ethnic groups have grown as
− Active Corps of Executives (ACE) well.
− Small Business Institute (SBI) • Better survival rates: About half will survive at least 9
− Small Business Development Centers (SBICs) years

• Networking: Reasons for Failure

− Meeting regularly with one another to discuss • Managerial incompetence/inexperience of the
common problems and opportunities and, perhaps entrepreneur
most important, to pool resources • Neglect in not devoting sufficient time and effort to the
business
Franchising • Weak control systems that do not warn of impending
Franchising agreement: problems
− A contract between an entrepreneur (the franchisee) • Insufficient capital to sustain the business until it starts to
and a parent company (the franchiser); the turn a profit
entrepreneur pays the parent company for the use of
its trademarks, products, formulas, and business Reasons for Success
plans • Hard work, drive, and dedication by the entrepreneur
• Careful analysis of market conditions that provides
Advantages insights about business conditions